Yen jumps before Bank of Japan meeting, oil mixed

Herbert Lash

4 Min Read

A woman counts Japanese 10,000 yen notes in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano/Illustration/File Photo

NEW YORK (Reuters) - A buoyant yen and U.S. oil prices at three-month lows kept stock markets on the defensive on Tuesday as investors awaited central bank meetings this week that will unveil new stimulus in Japan and may provide clues on U.S. interest rates.

U.S. equity markets closed mixed while stocks in Europe traded slightly higher as gains in major healthcare and consumer goods stocks propped up European equities to offset persistent concerns over the region’s banking system.

The yen hit two-week highs against the euro and more than one-week highs against the dollar as traders dialed back expectations of how much new stimulus authorities will inject into Japan’s ailing economy at the end of the week.

Most economists surveyed by Reuters expect the Bank of Japan to expand its asset purchases and cut rates further below zero at a two-day meeting that ends on Friday.

Comments by Japan’s finance minister, Taro Aso, raised concerns that the government will not work as closely with the BOJ to implement new stimulus as investors had hoped.

“We are also seeing not much pressure from the Japanese government on the BOJ to ease. All this is helping the yen,” said Yujiro Goto, currency strategist at Nomura.

The yen JPY= gained 1.08 percent against the dollar to 104.62. The euro EURJPY= fell 1.17 percent to 114.92 yen.

Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut, said he doubted an eventual rate hike by the U.S. Federal Reserve would halt the upward trend on Wall Street.

“It doesn’t matter what you throw at the market. The bears have been mauled,” Wilkinson said. “It doesn’t pay not to be invested.”

The Dow Jones industrial average .DJI closed down 19.31 points, or 0.1 percent, at 18,473.75. The S&P 500 .SPX added 0.7 point, or 0.03 percent, to 2,169.18 and the Nasdaq Composite .IXIC rose 12.42 points, or 0.24 percent, to 5,110.05.

The Fed is expected to leave interest rates unchanged when it concludes its two-day meeting on Wednesday. Investors are looking for any signs that the U.S. central bank might be more likely to hike rates in coming months.

Data showed U.S. consumer confidence holding steady in July while sales of new single-family homes hit their highest level in nearly 8-1/2 years in June, suggesting sustained momentum in the economy.

Other data showed moderate gains in house prices in May, which should support consumer spending and keep home purchasing affordable, especially for first-time buyers who have started venturing into the housing market.

The U.S. central bank is widely expected to leave its target on policy rates at 0.25 percent to 0.50 percent this week due to global risks. But traders seemed wary of signals the Fed would consider raising rates by year-end on signs the economic expansion remains on track.

U.S. Treasury yields fell and followed a decline in European government debt, whose yields held in negative territory due to purchases by the European Central Bank.